Rising freight costs as well as volatilities in trade and commodity markets have spoiled the broth for most food companies in the United States, including Hormel Foods Corporation HRL. Despite these downsides, the company managed to survive on the back of strong brands and is gaining from steady growth in the Refrigerated Foods and International categories. Notably, the Zacks Rank #3 (Hold) stock has gained 14.7% in the past three months, against the industry’s decline of 2.9%. Let’s delve deeper.
Portfolio Adorned by Strong Brands
Hormel Foods’ portfolio consists of robust brands that are fueling its popularity and boosting growth. Stronger demand for brands like Hormel Black Label bacon, SPAM, Muscle Milk and Wholly Guacamole dips are expected to drive revenues in the upcoming quarters. Moreover, the company believes that increasing popularity of other brands like The Natural Choice, Cafe H products and Hormel fire braised meats will fuel performance.
The company is also committed toward making strategic advertisement investments to support growth of brands. Additionally, the company focuses on launching products to meet consumers’ preferences aptly.
Acquisitions are other lucrative mechanism through which the company is strengthening its brand. To this end, buyouts of Columbus, Fontanini and Ceratti are yielding and expected to continue boosting performance in the forthcoming periods.
Additionally, strong brands and effective strategies are aiding growth in the Refrigerated Foods and International categories. These segments witnessed year-on-year growth of 5.7% and 7.3% during the fourth quarter of fiscal 2018, respectively. Prior to this, these segments registered respective increases of 10.1% and 11.1% in the third quarter, 13.6% and 22.1% in the second quarter as well as 4.8% and 19.5% in the first quarter.
Market Volatilities Raise Worries
Volatile tariff environment for pork is an obstacle for Hormel Foods. Evidently, higher tariffs in core markets weighed on fresh pork export volumes, sales as well as profits in the International division during the fourth and the third quarters of fiscal 2018. The company expects global trade uncertainties to be a hurdle for fresh pork exports. Moreover, we note that headwinds in the pork industry led the company to sell the Fremont processing facility to WholeStone Farms in December 2018.
Further, soft turkey market conditions and higher freight costs are denting the company’s performance since the past few quarters. In fact, rising freight costs are a hurdle for other food companies like Tyson Foods TSN, Conagra Brands CAG and Sanderson Farms SAFM.
Nevertheless, we expect Hormel Foods’ strong brands, rising demand for meat and effective strategies to provide some cushion from the aforementioned hurdles.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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